No More National Home Prices

Usually they are local, like the big ones in California and Texas in the last quarter century that had to do with local economic conditions, aerospace and oil.

National housing recessions are pretty rare, and the one we're in right now is arguably unprecedented, and consequently hard to track and predict.

Home prices fell nationally because the housing bubble was largely national (albeit bigger in certain Western and sunbelt states), based on a change in lending standards that gave too many borrowers loans they inevitably couldn't afford. The bubble was national, the crash was national, but the recovery will be local.

That's why I say let's throw out the national home price numbers and get real estate back to its roots. Location. For one, when you use national home price numbers, you factor in distressed sales which are concentrated by highest volume in relatively few states. Yes, there are foreclosures everywhere, and yes, foreclosure percentages have risen in most, if not all states. But by volume, the number of foreclosed properties are in about five states. If you strip out distressed sales, organic home prices in most markets are stable to positive…I don't mean surging, but not plummeting.

We have to look at what share those distressed property sales are in each market, and then we have to look at the basic economics of each city, like the unemployment rate and the health of the local industry. Of course national factors, like today's plunge in consumer confidence, weigh on housing markets everywhere, but different markets will recover at a different pace.

This from S&P's David Blitzer on the latest S&P/Case Shiller home price report:

"This month’s report showed mixed signals for recovery in home prices. No cities made new lows in June 2011, and the majority of cities are seeing improved annual rates...Looking across the cities, eight bottomed in 2009 and have remained above their lows. These include all the California cities plus Dallas, Denver and Washington DC, all relatively strong markets. At the other extreme, those which set new lows in 2011 include the four Sunbelt cities – Las Vegas, Miami, Phoenix and Tampa – as well as the weakest of all, Detroit. These shifts suggest that we are back to regional housing markets, rather than a national housing market where everything rose and fell together."

And this from Zillow's Spencer Rascoff:

"Some markets are already there, like Washington, DC, and Manhattan, Pittsburgh, and parts of Florida, that are on what we are calling a saw tooth bottom, where they are kind of bouncing along the bottom. Manhattan values are up 13 percent year over year this past month, so there are some parts of the country because of local job growth that are starting to see a recovery. If the administration wants to do something about housing, do something about consumer confidence and jobs; that's what will get the housing market back."

Housing economists and pundits, as well as Washington policy makers, will inevitably continue to tout the national numbers and fuel national headlines, largely because it's these numbers that are used to value mortgages and bank balance sheets, and there's logic to that; still I think it's a disservice to the sector, which is more regional than any other.

When potential buyers see these national numbers and headlines, they make local decisions that may not be well-founded.

When policy makers see these national headlines, they make sweeping national decisions that may not be in the best interests of the federal budget, all borrowers, and housing's inevitable regional recovery.